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THE CHARACTERISTICS OF CHINA’S TRADITIONAL ECONOMY
This chapter depicts the characteristics of China’s traditional economy developed in the seven thousand years before China encountered the impact of the West in the mid-nineteenth century. The concept of cultural complex has been applied and it emphasizes the interrelations among the geographical basis, mode of production, ideologies, economic institutions, and the change of time. International comparisons are made to highlight Chinese characteristics. The purpose of this description is to provide a background for understanding the economic development of present-day China.
The findings include the following: the unique beginning of the Chinese civilization which was in a loess highland, rather than in the alluvial plains of other civilizations; this led to the development of a more labor-intensive economy and an industrious population in China. The traditional Chinese economy that was developed more by the people than by the government, in contrast with the economy after 1949. The historical shift of the economic center since the eleventh century, from the northwest to the coastal area in the southeast, which has enabled the latter area to develop international cooperation in modern times. The intimate rural–urban relation in the Chinese tradition was jeopardized as some of the Chinese coastal cities were more integrated with the international market than the domestic market. Finally, China’s traditional economy, which was not stagnant but experienced long-term economic growth although it is interrupted by natural and political disasters.
In the view of some economists, a traditional economy is one developed without the influence of modern science, which was developed in the seventeenth-century European Scientific Revolution (Kuznets 1966: ch.1). China’s adoption of such a modern economy began in the mid-nineteenth century, but some elements of China’s traditional economy have lasted up to the present.
Some scholars see China’s traditional economy as having been precocious and only later stagnating. This view was debated among Chinese scholars in the 1930s and after 1949 (Schwartz 1954; Feuerwerker 1968), including a book related to the Tiananmen Incident (Jin Guantao and Liu Qingfong 1987). This chapter will point out that China’s traditional agriculture and commerce did continue to develop, although economic downturns and the political and natural disasters created some fluctuations around the upward trend.
Karl A. Wittfogel’s Oriental Despotism and other Marxian scholars tended to view China’s traditional economy through a totalitarian lens (Wittfogel 1957: 372–411). This chapter argues that despite the large state bureaucracy, small-scale private economic institutions dominated China’s traditional economy. In the early imperial period, the relationship between the government and merchants was characteristically one of dominance and subordination, but by the late imperial period, this relationship had become one of mutual dependence. An official statement of 1844 to allow commoners to open new mines declared: “Natural resources on Earth are provided for the use of millions and millions of people,” “It is also one way of hiding economic wealth among the people” (cangfu yumin), and “Neither can the officials repress or manipulate all affairs” (Lin 2006: 191). This chapter aims to reveal this tradition of popular wealth dispersal, a concept originating in ancient China and described in Hanshu, the Han Record (Zhu 1999: 132).
In ancient China, there were two prominent schools of egalitarian thought with regard to the distribution of wealth: the Mozi school advocated the equal distribution of wealth without status differentiation, while the Confucian school argued in favor of an egalitarian distribution with status differentiation. Historically, most Chinese scholars who addressed egalitarianism elaborated their ideas along the lines of the Confucian school (Li Quanshi 1928: 18–19). This chapter will demonstrate how this mainstream school of economic thought was manifested in China’s economy in the dominance of small-scale production and exchange activities, and long-lasting economic institutions capable of bolstering economic incentives and facilitating greater social mobility compared with contemporaneous societies.
China is a vast country, integrating various cultures, each of which developed in a particular manner and at a particular pace. Small-scale production started in Northwest China around 5,000 bc. Although China’s civilization originated in this inland northwestern region, its economic center shifted to the southeastern littoral region in the eleventh century (Chi 1936: 78, 89). The reasons for this shift include the following: frequent wars between the Han and the non-Han people on the northern frontier, the devastation of the irrigation works in the north, the threat of floods along the Yellow River valley, more suitable geographical conditions for the development of agriculture and commerce in the south, and the development of international commerce in the east. Furthermore, China’s geographical shift of economic power from northwest to southeast differs from the shift of Europe’s economic center from the southeast, along the shores of the Mediterranean, to the North Atlantic area in the northwest. This chapter will relate the change of China’s economic center to changes in its traditional economy over a period of approximately seven thousand years.
The chapter will be divided into six sections: section 1 will depict China’s broad social basis constituted of small-scale production and exchange activities. The existence of technological progress in China’s traditional economy will be discussed in section 2. Section 3 will point out the compatibility of the landlord and tenancy system, capital accumulation system, trade and ideologies with the rise of merchants. The close rural–urban relation in China with its rather broad rural basis, which was strengthened in the late imperial period, will be discussed in section 4. Section 5 will deal with the role of the government. Section 6 will describe China’s economic cycles in the process of its long-term growth, particularly the final economic downturn which caused China to drop from its dominant position in the East Asian order in the mid-nineteenth century when China encountered the West. Finally, an epilogue will be provided to summarize the characteristics of the traditional economy relevant for the development of modern China.
Earlier studies of cultural diffusion stated that agriculture first originated in the alluvial deltas of Egypt and Mesopotamia and featured large-scale irrigation works and production units. They also stated that Chinese agriculture followed a similar pattern, beginning in the alluvial delta of the lower stream of the Yellow River in northern China. In fact, Chinese agriculture made its independent start in the loess of the northwest, which shaped the small farming as key aspect of the Chinese mode of production and other cultural traits.
Chinese civilization emerged in the upstream loess highland area of the Yellow River. Standing an average 50–150 meters above sea level, with an average rainfall of 250–500 millimeters, and possessing an irregular and vertically cut loess geology, large-scale irrigation of wheat crops, as practiced in ancient Egyptian and Mesopotamian civilizations, was impossible. Chinese agriculture instead practiced small-scale millet cultivation, which required less water and could better draw the water and mineral content of the loess. The irregularly cut loess was similarly unable to sustain large-scale animal husbandry, meaning that China could not rely upon animal energy to scale up agricultural production. The resultant labor-intensive technological bent encouraged population growth and an industrious spirit. This focus on population growth also bolstered ancestor worship, which underscores the extension of the bloodline (Ho 1975).
Such a mode of labor-intensive agricultural production without significant animal input was much extended in the later historical period. While large-scale farms using the multiple-hitch oxen ploughs were developed and practiced in the former Han period (206 BC–AD 220), this practice was replaced by a single-hitch plough in the later Han period due to the lack of oxen (Wang Zhirui 1964: 100; Li Jiannong 1981a: 155). In the later Han period (AD 25–220), a smaller farm size of 667 square meters replaced a bigger farm size of 831 square meters (60x60 chi – one chi of Han dynasty equals 23.09 cm) prevalent in the Former Han period (Li Jiannong 1981a: 156–158). The tendency to rely on labor-intensive technologies was reinforced after the Song period (960–1279), when China’s economic center shifted from the north to the south, where animal husbandry was even more difficult to develop due to the region’s higher population density (Wang Zhirui 1964: 99–100). In addition, high population density could hasten the spread of contagious diseases.
Considering that an acre of land used to produce wheat could, in a good harvest year, provide 2,988,000 calories of nutrition; if that piece of land were used instead to raise lamb, it would provide only 318,750 calories of nutrition. To offer a simple comparison, if a section of land sown in wheat yielded 100 calories, raising pigs would yield 7, sheep 11, dairy production 43, rice 131, beans 129, potatoes 260, and sweet potatoes 482. As cropland produced ten to seventy times more calories to feed the growing population than could pasture land, large-scale animal husbandry was discouraged (Majia 1930: 202–204).
As a result, human-hauled ploughs or hoes were more often used than ox-hauled ploughs after the Song period (Majia 1930: 209; Sudo 1962: 73–138). In the 1910s, animal husbandry made up only around 1 percent of China’s agricultural production (Perkins 1969: 30).
The tendency towards labor-intensive technology affected China’s emphasis on extending familial bloodlines. The Chinese concept of lineage extension differs from that of the Japanese, which underscored the expansion of family properties or prestige. The Japanese inheritance system had featured primogeniture since the seventeenth century due to the more competitive life challenge in the Warring States period. The Japanese system tended to promote one capable son, or lead to the adoption of a capable son from another family, in order to extend a well-established family’s property or prestige.
By contrast, China had employed equal distribution since the Han dynasty (206 BC–AD 220) and there are many interpretations for such practice. In the feudal period or semi-feudal period before the unification of the Chinese empire in the Qin dynasty, inheritance included the feudal ranks. As a rank could not be divided in the same manner as economic resources, both the rank together with the economic resources were inherited by only one heir. After the feudal or semi-feudal system was replaced by the imperial administration, each registered household had to pay taxes to the government; the equal division inheritance system secured the basis for tax payment. Furthermore, Confucian persuasion for equal wealth, Chinese emphasis on the bloodline extension, and the small-scale mode of production of traditional China had also facilitated this practice (Liu Xinning: 1, 132–136).
This inheritance system is significant in that the Chinese system made possible a higher marriage ratio of males than did the Japanese as Chinese males had a better economic basis to get married. China also had the baby-daughter-in-law system, which saw girls adopted as daughters and married to an elder son of the step-parents when they became of age. This system enabled poor males with no chance of inheritance to marry. The concubine system, on the other hand, enabled rich men to have more offspring.
China’s marriage ratios for men and women were both higher than those in Europe, and China’s male marriage ratio was higher than that of Japan. Marital age in China was younger than that of Europe, and remarriage encouraged. The family dynamics in China effectively implemented the Confucian maxims that “a boy or a girl should be married,” and “an ideal society should be one in which there are no unmarried men or women” (Lin 1991).
With some use of birth control, family sizes in traditional China were about the same as those in early modern Europe or Japan. However, China’s higher marriage ratio or lower marriage age, together with other exogenous factors, resulted in China’s more vivid population growth.
During the Northern Song dynasty (960–1126), the Chinese population increased to 100 million (in 1086) as compared with the 70 million reached during the Western Han era (206 BC–AD 25). In the early Qing period (around 1760) it reached 200 million, around 1790, the population rose to 300 million, and by 1850, topped 430 million (Durand 1960; Liu and Hwang 1979: 88). Dwight Perkins has estimated the average annual population growth rate of China from 1400 to 1957 as 0.39 percent (Perkins 1969: 81). Hanley and Yamamura estimated that the average annual growth rate for Japan’s population was 0.03 percent from 1721 to 1846 (1977: 63). Thus the overall annual population growth rate of Japan’s entire late Tokugawa period was significantly lower than that of China from 1400 to 1957.
Typically, a Chinese peasant household would average 5.5 people (Durand 1960) and cultivate one or two hectares of land (Wu 1947: 49). Even though China had a landlord system, land holdings were usually scattered, and each individual farm plot was small. The reason was that these lands might be purchased at different times, distributed among several sons, or tilled by several tenants (Wu 1947: 55–56). Although earlier scholars describe the distribution of land during the Northern dynasties (386–581) through to the Tang dynasty (618–907) as befitting a manorial economy, the average farm size was actually about 22.5 mou (one hectare was about 15 mou), and there were about five or six tillers per farm (Watanabe 1974).
In China, the tendency towards smaller units of production went hand in hand with a tendency towards smaller units of exchange.
China’s long-term copper coinage by the governments reflects China’s prevalence of small-scale exchange in the traditional period. During the Western Zhou dynasty (?1027–771 BC), Chinese people started to use copper-cast shell money. In the late Warring States period, the coins in the shape of the spinning wheel were transformed into circular copper coins with square holes in the center (Peng 1954: 78). For the next two thousand years, in China, copper coins were the standard currency of retail exchange (Peng 1954: 67–92, 179).
China’s widespread use of copper coinage differs from the practices of other countries. In the seventeenth century, about three-quarters of Japan’s money was coined from gold or silver. In the eighteenth century, this share dropped to approximately one-half before increasing again to about 90 percent in the nineteenth century (Takehiko Ohkura and Hiroshi Shimbo 1978:118–119). In early modern France, the coins cast by the king’s mint were mainly gold and silver, and only when these metals became scarce and Japanese copper was imported into France in the seventeenth century did France begin casting copper coins for the use of the poor (Miskimin 1984: 127–260).
China minted copper coins whose value was only about one-hundredth that of silver around 1800. It would be too bulky to use copper coins in large-scale and long-distance transactions (Lin 2006: 4). Silver’s value in relation to gold was maintained at between 1 (gold):14.5 (silver) and 1:15.1 in the period between Columbus’ arrival in America and the widespread adoption of the gold standard in the 1870s (Peng 1954: 611). Silver used in China was obtained by the market, but not coined by the state. In a Chinese traditional period without a central bank to manage the monetary system, metal money was used mostly as a real currency which reflected its actual intrinsic value, except at times when it was turned into fiat money to inflate its face value to some extent. The long-term and prevalent use of copper coins cast by the Chinese imperial state illustrates the particular dominance of small-scale exchanges in traditional China.
The medium- and small-scale merchants were the chief members of huiguan, the inter-provincial native-place association, more shaped in the Ming–Qing period for China’s interregional trade. Medium- and small-scale merchants were sometimes involved in international trade. Taiyi Hao, a merchant family from the Jinmen archipelago (Quemoy) in Fujian province, settled in Nagasaki in 1850 to conduct trade between Japan, Taiwan, and China, yet only employed around ten employees (Lin 1998: 28).
Although Chinese production and exchange were mostly engaged and earned by small peasants or traders, which facilitated a more equal distribution of wealth, China also experienced technological progress and had institutions for social mobility.
In the 1920s, R. H. Tawney observed that China’s peasants “ploughed with iron when Europe used wood, and continued to plough with it when Europe used steel” (Tawney 1996: 11). This anecdote is often taken to imply early Chinese technological sophistication and later stagnation. In fact, China witnessed other technological progress, aside from the iron plough.
Wheat, barley, oxen, sheep, and the cart wheel were introduced from the West into China via Siberia around 1300 BC; glaze, glass, cucumbers, and grapes were introduced to the Han dynasty (206–220 BC) from the West; and tea and silk cotton (bombax malabaricum) were introduced from Southeast Asia to Han dynasty China (Ho 1978: ch. 2; Liu Boji 1951: ch. 4).
Dykes were invented in the Former Han dynasty and artificial ponds were started during the Later Han dynasty (Huang Yaoneng 1978). Waterwheels to pump water from low land to high appeared at the end of the Han dynasty (Li Jiannong 1981a: 45). Water dams were created during the Ming dynasty (1368–1644) (Needham 1971–1973: 44). The number of irrigation works was 56 in the Han dynasty, 254 in the Tang dynasty, 1,116 in the Song dynasty, 2,270 in the Ming dynasty, and 3,234 in the Qing dynasty (Chi 1970: 36).
Initial modifications in the cropping system included the elimination of fallow land during the Han dynasty (Li Jiannong 1981a: 155) and in the latter Han dynasty the change from broadcasting the seed to confining it to a particular area to facilitate frequent mowing, watering and fertilizing, double cropping, or multiple cropping, on the same piece of land (Perkins 1969: 41; Majia 1930: 204). In the second and third centuries AD, Chinese people began learning how to improve seed varieties to adjust to natural disasters (Majia 1930: 176–177). The practice of growing wheat in winter, after the autumn harvest of the spring-planted rice, began at the end of Han dynasty – following the introduction of the waterwheel for milling wheat. Mulberry trees, hemp, tea, and wheat were introduced into southern China from the north during the Tang–Song period. After the Tang–Song transition, in the eleventh century, early-ripening rice from Annam was introduced; in the fifteenth and sixteenth centuries, sweet potatoes, maize, peanuts, and potatoes were introduced from America (Ho 1956: 200–218). When much of the wood from slow-growing forests was consumed by the huge population, fast-growing bamboo was grown as a substitute for housing material and fuel (Majia 1930: 139–140, 170).
One reason for the decline of Mesopotamian civilization was the loss of soil fertility (Fairsewis 1967: 42). Maintaining the fertility of agricultural lands in China for approximately seven thousand years to feed a large population is a demanding task, particularly since a portion of the land was also used for producing fibrous materials.
In Western Europe, lambswool replaced hemp and flax as the main inputs in cloth production in the fifteenth and sixteenth centuries, and cotton replaced wool in the eighteenth and nineteenth centuries. Except in some northern areas, China did not pass through a period of wool production. Cotton, which came to China in the fifth century, had become the most important material for cloth production during the twelfth to fourteenth centuries. Production of cotton, hemp, and silk (the secrets of silk had been discovered several thousand years earlier) all require arable land (Majia 1930: 90, 139).
The Chinese maintained land fertility in the following ways:
1. Growing bean or other plants: from the Han period onward, Chinese farmers realized that beans increased nitrogen levels in the soil, and began planting beans before sowing grain. Simultaneously growing a variety of plants, or seasonally changing the crops grown on the same piece of land, were other means of improving soil fertility.
2. Chaff burning and drainage: in the fourth century, Chinese farmers learned to burn the chaff of the previous crop to maintain the soil fertility. Also, Chinese advances in irrigation technology were accompanied by the employment of drainage technology so as to protect the land against salinization.
3. Growing plants that demanded less fertilizer: China grew increasingly more rice, corn, and millet, which needed less fertilizer than wheat, barley, or oatmeal.
4. The use of fertilizer: heavy use of fertilizer has long been a salient feature of Chinese agricultural technology. During the Zhou dynasty (1134–256 BC), people started to make fertilizer from manure, bone soup, and grass ash. In the Spring and Autumn period and the Warring States period, people also started to make green manure (Majia 1930: 135–179, 218). From the Song period onward, China had large-scale enterprises involved in collecting human waste (Hucker 1975: 343). Around 1500, soybean cake was invented for use as a fertilizer (Perkins 1969: 70).
As a whole, the pre-Song period produced more labor-saving agricultural technological inventions – such as the plough, hoe, waterwheel, dyke – than the post-Song period, but the post-Song period produced more labor-intensive or land-intensive agricultural technologies, such as early-ripening rice, Latin American crops, bean cake, and dams among others. Once China’s growing population was being adequately nourished by the expanding economy after the Song dynasty, greater attention was paid to human relations. This emphasis distracted some energy that was invested in science, technology, and economic production, to great effect, in the West (Tang Qingzeng 1975: 6). However, in comparison with the West, traditional China realized some outstanding achievements in terms of general technological advancements before and after the Song dynasty.
Agriculture: not until the seventeenth century did Western Europe dispense with the fallow field system of land use that China left behind during the Han dynasty (Majia 1930: 175–176). It was not until the agricultural revolution in Europe that green manure was produced, while China started making use of it in the Warring States period (403–221 BC) (Majia 1930: 139, 142).
Industry and mining: the Chinese discovered iron later than the West, but the Chinese were able to cast iron earlier than the West. In 1050, the Chinese started to replace charcoal with coal as an energy source, whereas Europe made the same shift on the eve of its Industrial Revolution (Hartwell 1962).
Science and technology: the sciences and technologies introduced to the West from Asia, in which China played the most important role, include: the breast-strap harness (between the fourth and sixth centuries), foot-stirrup (eighth century); equine collar harness and the simple trebuchet in the field of artillery (tenth century); the magnetic compass, the stern-post rudder, paper making, the concept of the windmill, wheelbarrow, counter-weighted trebuchet (the twelfth century); gunpowder, silk machinery, the mechanical clock, and the segmental arch bridge, blast furnace for making cast iron, block printing, movable-type printing (the thirteenth to fourteenth century); the spit vane wheel, the helicopter top, the horizontal windmill, the ball-and-chain flywheel, the lock-gates in canals (the fifteenth century); the kite, the equatorial mounting, and equatorial coordinates, the doctrine of infinite empty space, the iron-chain suspension bridge, the sailing carriage (the sixteenth century); and porcelain technology, the rotary-fan winnowing-machine and watertight compartments at sea (eighteenth century) (Needham 1964:299–300).
With these advances and other reasons, China’s arable land increased from 370 million shih mou in 1400 to 950 million shih mou in 1770, to 1.2 billion shih mou in 1850. Agricultural output per shih mou had been 139 catty (one catty is 0.681 kilogram) in 1400, and increased to 203 catty in 1770, and 243 catty in 1850 (Perkins 1969: 16–17).
China’s territory is vast, and technological diffusion takes time. Thus, old technology continues to be applied in some areas, while new technologies are adopted elsewhere (Li Jiannong 1981b: 45).
The concept of ownership in China can be traced to the Neolithic era. Before the emergence of this concept, a gathering economy also signified public ownership, as the possibility of gathering was decided less by human effort than by luck. After married couples settled down to till the land in this period, the concept of ownership emerged as it provided useful incentives (Deng 1942: 45–46). Ancient China has been, to a great extent, deemed as a feudal society by scholars from the People’s Republic of China (PRC). This feudal concept was based upon Karl Marx’s perception of the European Middle Ages, in which peasants were serfs of the feudal lord and could not purchase or own land. In China, in contrast, the privatization of land was started in the Spring and Autumn era (722–481 BC).
The term “dizhu” (for landlord) was coined in the Weijin period (220–420) (Shu 1963: 33–64). Even under the redistribution system for the land holdings from the Weijin to the Tang period, private land was maintained. Only public land won in war was distributed equally among the war-stricken people – some portion of this land could be inherited by sons and maintained as private land (Shu 1963: 46).
Private landownership could be secured by written contract from the Song dynasty (960–1279) onward (Wang Zhirui 1964: 118–119). The dynasties established by foreign conquerors, such as the Liao (907–1125), Jurchen Jin (1125–1234), Yuan (1279–1368), and Qing (1644–1911), as well as the Ming dynasty (1368–1644) established by the Han Chinese, saw land taken by the imperial families and held privately.
In 1865, private land accounted for 92.2 percent of the total for the whole country; public land, including the lands used for schools, lineages, worship, and soldiers, accounted for 4.1 percent of the total, with the remainder maintained as government land. In 1947, private land accounted for 93.3 percent of the total, while public land, including lands for schools, lineages, temples, soldiers, and welfare purposes accounted for 5.7 percent, and government land accounted for 1.0 percent (Wu 1947: 108–109). This land privatization allows for the differentiation of social status.
In the early Republican period, the tenancy ratio of China was lower than that of Australia, England, Japan, New Zealand, and about the same as those of Belgium and the US, and higher than those of Germany, Holland, France, Austria, Hungary, and Denmark. Therefore, the tenancy ratio in China was not particularly high. Was a high tenancy ratio unfavorable to agricultural productivity? In Japan, the tenancy ratio was high and farms small and fragmentary, yet the country enjoyed agricultural growth in the modern period (Ohkawa and Rosovsky 1960: 56–68).
In China, the tenancy ratio was higher in the south than in the north. In the south, tenancy was further divided between a subsoil landlord with landownership and a topsoil landlord with usage rights over the land. Tenants rented the land to till from the topsoil landlord, and topsoil landlords rented land from subsoil landlords. But agricultural productivity was higher in the south than in the north (Wu 1947: 139, 142; Perkins 1969: 102). Hence, the greater tenancy ratio did not necessarily lead to lower rates of agricultural productivity.
In principle, self-cultivation should enhance the farmer’s motivation for increasing production activity, but a reasonable tenancy contract would still promote agricultural development. In the case of England, the tenancy ratio was high, but the rent low, and agricultural productivity continued to increase.
In China, under the well-field system of the Zhou dynasty, the peasants were in some way, tenants of the government as they tilled the lands of feudal lords, but more like serfs as their lives were at the disposition of the lords. From the Qin dynasty (248–206 BC) onward, the landlords had only economic relations with their tenants. In the period between the Han and Tang dynasties, though some tenants had tried to evade the heavy taxes charged by the government by becoming the subordinates of powerful landlords, and thereby lost their freedom, they could leave their landlords and return to being subjects of the government. Since the Tang dynasty (618–907), thanks to more advanced commercial developments, peasants’ non-agricultural income increased, and tenants’ labor obligations to their landlords mostly disappeared. Before, and in the Tang period, rents were mostly fixed at a fifty-fifty split of the harvest between the landlords and tenants; after the Song period, the rental contract tended to set a fixed rent, regardless of the harvest.
For those tenants under fixed ratio rents, landlords would provide more capital and technology instruction. Those tenants under contract to pay a fixed rent had stronger incentives to increase productivity as they could retain more of the increase. In recently developed areas, where harvests would be less consistent, fixed ratio rents were the norm (Wu 1947: 167).
Before the Northern Song dynasty (960–1126), there were more fixed, absolute rents in northern China, and more fixed ratio rents in southern China. After the Northern Song period, this situation was reversed (Shu 1963). In the 1930s, according to an investigation by the Central Agricultural Experiment Institute across twenty-two provinces, fixed ratio rents prevailed in the less-developed northwest, north, and southwest areas. In general, from the Song through to the Republican period, the percentage of fixed amount contracts had increased for the whole of China. In the 1930s, during the Republican period, the percentage of fixed amount rental contracts had risen to 78 percent, and the percentage of fixed ratio rents had fallen to 22 percent (Wu 1947: 211). The coerced labor system could only be found in Tibet, Sikang, the southern section of Yunnan, and western Section of Sichuan. The tenancy situation in China therefore had changed greatly from the coerced labor system, to the fixed ratio system, and then to the fixed amount system.
When barter trade started in the Shang period (?1523–?1027 BC), China did not have merchants, and trade was conducted by the producers themselves. It was not until the Western Zhou period (1027–771 BC) that professional merchants emerged, mainly to serve feudal aristocrats by supplying them with the desired commodities. Only in the Spring and Autumn (770–403 BC) and the Warring States period (403–221 BC), when agricultural technology was much improved, did households retain sufficient surpluses that professional merchants found it profitable to serve the ordinary people (Sa 1966: 29).
During the Zhou dynasty (1134–256 BC) onward, merchants’ guilds based on family relationships came into being (Chuan 1978). Before the Sui (589–618) and Tang (618–907) dynasties, merchants could open stores only in restricted locations, and merchant guilds were localized. After the Sui and Tang dynasties, the restrictions on store locations were lifted. From the Ming and Qing period onward, long-distance traders started to organize guilds on the basis of their native places, which gives some indication of more interregional trade being developed (Kato 1978: 68–69).
Some long-distance trade extended to become international trade. Historically, China engaged in continental trade with Manchuria, Mongolia, Central Asia, and neighboring countries to the southwest, and maritime trade with Southeast Asia, Japan, Africa, and America. The continental trade was most prosperous during the early Tang and Yuan dynasties; it was developed, and yet not as prosperous in the Han and Six Dynasties and declined in the Song period because other political powers were hindering the contact in between, and again developed to some extent in the Ming and Qing periods. By contrast, the maritime trade in general prospered from the Tang period until the maritime ban of the Ming and the early Qing periods (Kato 1978: 80–88). Hence, various trades gave rise to various types of merchants.
Partnerships began to appear in the Song period and prevailed in China in the late nineteenth and twentieth centuries which also helped with capital accumulation (Lin 1998: 70–72). And contrary to what Max Weber wrote, this method of capital accumulation was not limited to family members (Weber 1951: 95).
By contrast with the lower-intrinsic-value coinage, higher-intrinsic-value currency was also available in China for more convenient capital accumulation. China used gold or bronze of higher quality for the storage of greater wealth and larger-scale exchanges from the Warring States period to the Han period. Silver and deerskins began to be used for value storage sometime in the Han period. During the Six Dynasties and the Tang dynasty, because of the invasion of northern intruders, trust in the convertibility of money into goods waned and a barter economy based upon woven products prevailed. From the Song through to the early Ming dynasty, convertible paper exchange notes were mainly used for large-scale exchange. From the mid Ming dynasty until 1933, silver replaced paper exchange notes for this purpose (Peng 1954: 257–290; 370–392; 429–460; 521–565). As silver was obtained mainly by merchants through international trade, and silver had been regulated by the government for taxation and long-distance trade, the late imperial Chinese economy was very different from that of a modern state with a central bank. Merchants held the dominant currency, silver, while the government controlled the auxiliary currency, copper coins (Lin 2006: introduction and ch.1).This monetary arrangement greatly facilitated merchants’ capital accumulation.
The secularization of knowledge developed from the mid-Tang by the Zen Buddhists, in the Ming period by the Wang Yangming school Confucian scholars and by the Daoists, facilitated the printing of commercial handbooks in the Ming and Qing dynasties. These books promoted diligence, honesty, and charitable works as mercantile ethics. It also encouraged merchants to gain religious merit and to command social respect by performing beneficent works (Yu 1987).
With a rather broad social basis and quite flexible social mobility, China had a particularly close rural–urban relation in its traditional economy.
Though a city commanded more resources than a rural area, as a whole, cities accounted for fewer resources than the countryside. In the Republican period, only 7–8 percent of rural products were sold to regions 30 miles away from where they were produced. During the Qing dynasty, cities accounted for only 5–6 percent of the total population (Skinner 1977: table 4).
Government taxation amounted to a kind of resource forwarded from the countryside to cities. In Qing times, land taxation accounted for only around 2 percent of the total national income (Wang Yeh-chien 1973: 133). Albert Feuerwerker calculated the percentage of state revenue as a proportion of national income at 13 percent for the Northern Song dynasty around 1080, 6–8 percent for the Ming dynasty around 1550, 4–8 percent for the Qing dynasty around 1750, 7.5 percent for the Qing dynasty in the 1880s, and 5–10 percent for the Qing dynasty around 1908 (1984: 297–326).
Government loans existed from the time of the Zhou dynasty onward (Peng 1954: 62). In general, the share of government loans that went to the peasantry was very small. In 1933, a census of peasant families in 850 districts of 22 provinces showed that 56 percent of peasant families found it necessary to borrow money. For their source of loan, modern cooperatives shared 1.3 percent, relatives shared 8.3 percent, landlords shared 9 percent, rich farmers shared 45.1 percent, merchants shared 17.3 percent, pawnshops shared 8.7 percent, and granaries or churches shared 10.1 percent (Amano Motonosuke 1936).
For Chinese traditional economy, there is a metaphor: man tills the land; woman weaves the clothes. The rural industries for making silk, bamboo, and wood products began in the Zhou dynasty and continued ever afterward (Moritani 1936: 47–52). However, in L. Buck’s rural investigation in the early Republican period, only 20 percent of the rural families were involved in rural industries, and the income derived from rural industry products accounted for only 3 percent of the total agricultural income (Potter 1968: 174–212). Hence, the rural villages themselves could not constitute a self-sufficient economic unit.
According to Skinner’s study, in an open, flat area, about 18 villages would periodically hold a standard market to facilitate exchanges with each other. The area encompassed by a standard market also constituted an area sharing the same measures, dialect, and folk religion. Such markets also facilitated the work of runners and clerks who issued taxation notices and accepted copper or silver in payment of those same taxes. Local elders would also take the opportunity to read imperial edicts or Confucian teachings to the country folk (Skinner 1964–1965).
The urban upper class comprised the gentry and merchants. As no strict class restrictions were in place for sitting the imperial examination, those from the countryside comprised a large number of the gentry. In 1947, Pan Guangdan and Fei Xiaotong analyzed the metropolitan degree holders of 1862–1908, and found that 52.5 percent of the metropolitan degree holders in Beijing came from great cities, 6.3 percent from market towns, and 41.2 percent from the countryside. Of metropolitan degree holders in Shandong, Anhui, Henan, and Shanxi, 36.6 percent came from the great cities, 7.6 percent came from market towns, and 55.9 percent from the countryside (Skinner 1977: 266–267).
Chinese tenants were not tied to the land they tilled; they could go out and open their own business. As doing business was risky and legal protections in traditional China were insecure, merchants tended to form partnerships through kinship groups or native-place groups. Native-place chiefly referred to the standard market area, from which merchants in the cities took apprentices and were responsible to their parents at home with whom these bosses were acquainted. That is why Chinese merchants formed into groups by territory, for example: Shanxi, Shaanxi, Anhui, Fujian, and Guangdong. Traditional commercial organizations, such as native banks and pawnshops, as well as the Hong merchants of Canton and the new comprador merchants who emerged after the mid-nineteenth century, were mostly based upon blood ties and native-place relationships built in the rural area (Murphey 1977: 180–196).
A survey conducted in 1941 in the 12 provinces under the rule of the Chongqing government led by Guomingdang revealed that 72.6 percent of landlords lived in the countryside (Wu 1947: 116). Members of the gentry and the merchants, who went to the cities, sometimes left their families in the countryside. Money they earned in the cities could be remitted back home to relieve their relatives or for investment in property. In China, the relationship between the countryside and cities was much closer than that found in the West (Mote 1970).
Qing China’s social structure appears to have been more broadly based than that of Tokugawa Japan. Despite a population less than one-tenth that of Qing China, Tokugawa Japan had Edo as large as Beijing. In the more than two hundred years of the Tokugawa era, Japan’s urban population increased two and half times, and its society became more centralized around its capital. In contrast, when the Qing population increased two or three times over, the local market towns of China were more the focus of the increase than the administrative centers (Rozman 1973: xv, 60, 281, 282, 285, 298). At the same time, a Chinese landlord might own plots totaling as much as fifteen thousand mou (Wu 1947: 118–119), such estates were rather modest in comparison with the several tens of thousands of hectares often attached to European manors (Tawney 1966: 31–32). This evidence shows China’s tendency to have more equal income distribution.
With China’s broad social basis and intimate rural–urban relation, how could a despotic government as depicted by Wittfogel be possible? What was the exact relation between the government and merchants, or between the government and the economy in traditional China?
The imperial government maintained relatively steady revenues with light taxation. Given its vast territory, when one jurisdiction experienced a fiscal deficit, the surplus of another could ease the resulting difficulty. The imperial state did not need to tax merchants heavily, instead it mostly let merchants run their businesses without interference. With that steady revenue, the state maintained granaries to help relieve famine (Wong 1997: 132–139). Through the issuance of copper coins and maintenance of the granaries, the government could adjust the prices to some extent. Additionally, due to the building irrigation works, the encouragement of the cultivation of new crops, and the development of transportation routes, the government greatly facilitated economic growth.
The Grand Canal to connect southern and northern China was started in the Spring and Autumn period (770–403 BC), completed in the Sui dynasty (581–618), and improved in the Yuan dynasty (1279–1367). In the Tang (618–907) and Song periods (960–1279), the Three Gorges were opened to connect the upper stream of the Yangtze River and its lower streams (Bai 1937: 101–102).
The postal system was launched in the Zhou dynasty (1134–256 BC) and reached a climax during the Yuan dynasty (1279–1367). The imperial horse road opened in the Chin dynasty was barely used by the monarch. The postal route could serve for civilian use and was much longer. During the Qing dynasty, there were 1,956 stations in total, and the route stretched 80,000 li. Each province had between several hundred and a thousand substations. Each station had hotels, used mainly for official or military purposes. Commoners’ communications had to pass through friends, messengers, sedan carriers, or travelers, who could also cover these routes (Cheng 1970: 37).
Records of the Grand Historian or Han Record recorded that in the early Han dynasty, the government imposed several limitations on the merchants: merchants could not serve as officials, purchase land, ride horses or carts, wear luxurious or gorgeous clothing, and were subject to heavy taxes. This has often been cited as the Chinese government’s policy towards merchants in each dynasty. In fact, these policies were not really implemented, even in the early Han period. It has been noted that officials in each dynasty were privately involved with commerce (Wang Xiaotong, 1965).
Yang Lien-sheng and Etienne Balazs argue that each dynasty tried both to control and utilize the merchants. To control the merchants, the government tended to ask that the merchants serve as guarantors for each other, and the merchants had their own particular household registrations. But, from the Tang dynasty (618–907) onward, control was much relaxed. The government no longer relied upon guilds to keep an eye on the merchants. Merchants could contribute money to win official positions, and official money could be deposited at merchants’ shops to earn interest. Some governmental monopolies were farmed out to merchants for profit. During the Sui (581–18), Tang (618–907), and Liao (907–1125) dynasties, merchants and their offspring could not serve as officials. During the Song dynasty (960–1279), merchants themselves could not join the officialdom. During the Ming and Qing dynasties (1368–1911), the offspring of salt merchants had a special quota permitting some to attend the imperial examination, commercial taxes were lowered, and the merchants’ position improved (Yang 1970; Balazs 1970: ch. 4).
The symbiotic relationship between the Qing bureaucracy and merchants differentiates China’s traditional merchants from Henri Pirenne’s autonomous city merchants, who arose in the course of European expansion. Among the top guild were merchants doing business across the Taiwan Strait, who came from Fujian during the Qing period, some were of Fujian bureaucratic families and had family members serving in such high posts as governor-general of Sichuan and governor-general of Guangdong and Guangxi (Lin 2001: 131–132). The rise of the Shanxi merchants was related to military provisioning for the Qing state during its conquest of China and during the Ten Campaigns in the Qianlong period. From the initial years of the Taiping Rebellion onward, remittance banks started to distribute state revenue among the provinces (Lin 1998: 68–70).
As for the relationship between the government and the market, China’s monetary crisis, which occurred in the 1820–1850 period, reveals much divergence from stereotypical views of China’s despotic intra-governmental structure or government–market relationship. In such a crisis, the copper coin – the government-issed currency, depreciated by about half against silver – was the currency supplied by the international market through merchants. In the intra-governmental discussion between the emperor and officials in the province, the proposal to use more copper coins to replace silver was dropped because of objections from provincial governments.
The government-issued copper coins were not national coins in a modern sense: they were issued by various provinces, mainly for use in that province. The weight of copper coins would be about 240 times that of silver coins of the same value in the early nineteenth century. Thus, copper coins could hardly replace silver for long-distance trade. Provincial mints circulated the copper coins they cast in order to pay the salaries of soldiers in copper. In addition, the provincial mints also paid for some governmental purchase of civil goods or services in copper coins, and so passed the coins into circulation. A fixed official rate of 1 liang of silver for 1,000 wen of copper coins was used. Nevertheless, the market exchange rate between silver and copper coins rose from 1:1,000 to 1:2,500 in this period. More and more, the soldiers and the commoners refused to accept their pay in copper coins.
The government needed to spend silver to mint copper coins, to acquire copper from faraway southwest China, or Japan. With demand for additional copper coins and their value falling, the value of the silver needed for copper coinage developed to be four times the value of the silver with which the cast copper coin could be exchanged. The Qing state could not replace the 1:1,000 official rates with the market rate as it lacked the capacity to gather information and respond to a floating exchange rate. As a result, the Qing dynasty – deemed the most despotic period in Chinese imperial history – had most of its provincial mints closed, or issued fewer coins.
The Discourse of Salt and Iron of Han dynasty (206 BC–AD 220) has been taken as symbolic of China’s traditionally interventionist political–economic ideologies. In the monetary crisis of 1820–1850, the perceptions of, and arguments over, the dominance of markets over the government gained more and more social support as people saw vividly the uncontrollability of the market by the state. Wei Yuan (1794–1856) – who was a metropolitan degree holder, private secretary, magistrate, and prefect – made a proposal to allow the common people to open silver mines; the proposal also mentioned that private mining had coexisted with government-run mining as far back as 1133. Wei’s historical retrospect revealed to some extent the government-merchant relation for strategic resources as mines in imperial China (1967: juan 14, 36a–b).
Copper coins for retail trade were mostly used in the standard market areas. As copper coins were issued by the government, the lowest reach of the imperial power was not the district level, as many previous studies have stated. The supply of copper coins still affected people’s daily lives at the lowest level. On the other hand, silver was used more in the cities. The silver-copper coin exchange rates set by the bank shops in the cities would affect the number of coins that those living in rural areas paid for their taxes set in silver, or for products purchased from far-away places set in silver. Thereby, both the state and society were under the sway of the silver-holding merchants (Lin 2006: introduction, chs. 1, 3, 4, 8).
Over several thousand years of China’s traditional economy, despite ups and downs in agriculture or commerce, there was long-term growth in general. Within this trend, aside from external invasions, there was a dynastic cycle with intervals of roughly 250 years.
The dynastic cycle proceeded with the following pattern: the monarch who established a new dynasty would work to rebuild the economy and undertake infrastructure projects, such as irrigation works, transportation, the opening of new land, and granaries, which would nourish more people. Their dynastic successors might not prove as capable or prudent, and might not invest in the maintenance or upgrading of the infrastructure. This would result in a period in which population growth outstripped economic growth. It would stimulate the migration of rural people to urban areas and, for a time, contribute to the prosperity of urban areas. The enriched merchants would use their capital to purchase rural land, thereby widening the social gap between the rich and the poor. Soon, landless vagrants would become a source of discontent, increasing the chances of large-scale rebellion. The associated expense would result in an increase in taxes imposed by various governments and damage the rural economy. Without favorable rural markets, the urban economy declined. Such social instability often invited external invasion. The result would be the collapse of the old dynasty, significant population loss, and the founding of a new dynasty. Such a 250-year interval is far longer than modern economic cycles, which occur in periods of fifty, ten, or three to four years (Fei 1935: 1–13; Feuerwerker 1968).
The economies of China’s urban and rural areas were closely tied together. When the rural economy was strong, the countryside provided markets, capital, and labor for the urban areas; when the urban economy was weak, in the absence of other factors, the rural economy would be ruined. The main source of economic crises in rural areas was population pressure, while those in urban areas were due to market contractions (Lin 2004; Lin 2006: 126).
Some crises were caused by both sources. For example, many scholars argue that eighteenth-century Qing China’s economy fell from prosperity into poverty. An early indicator of prosperity was the doubling of arable land, greater interregional trade, the cultivation of new crops, and development of handicraft industries, which fed a population that doubled or tripled in size in half a century, outpacing the population growth of previous periods. But, around 1748, starvation became an issue.
This was not only the result of population growth; it was also a result of falling supply of money available to each person. From the sixteenth century onward, China’s money supply relied more and more on silver imports from abroad. From 1550 to 1700, Japan provided China with more silver than Latin America, while from 1700 onward, Latin America became a more important source of silver. In 1748 the population increased, while silver did not increase at the same pace, as Japanese silver decreased in supply and the Latin American silver did not increase as fast as the population. In twenty years (1775–1795), the rate of population increase slowed, the supply of Latin American silver increased, and per capita income improved. Consequently, the 1748 starvation issue was eased (Lin 2004).
In the 1820–1850 period, the rate of population increase remained slow, but the supply of silver on international markets fell drastically with the advent of the Latin American independence movement; thus, the livelihoods of the Chinese people deteriorated and social tensions were exacerbated – providing a background for the outbreak of the Taiping Rebellion and the civil wars that followed. These wars took the lives of between one in twenty and one in nine people out of a population of approximately 430 million. The result of this late imperial economic crisis was a reversal of the relative positions of China and Japan in the Asian geopolitical order. The silver-owning Japan, which escaped the silver supply crisis initiated from Latin America, went on to prominence under the Meiji Restoration (Lin 2006: chs. 1–3).
The characteristics of China’s traditional economy described in this chapter provide background and contrast for China in the modern times, which could be discussed in the following four aspects.
The conditions of the unique start of the Chinese traditional economy in the Northwest loess highland, with small land plots cut here and there, resulted in a decrease in the supply of animal energy. The fertility of the loess and the small supply of rainfall dictate industrious human effort. This Chinese propensity for industriousness and need for population growth was reinforced when China’s center of economy was moved from the north to the south in the Song dynasty, as population–land ratio was increased with a more mountainous geographical basis. This deep Chinese tradition has prepared the larger Chinese population bases for contemporary China, which shares about one-fifth of the world population.
The Wittfogel despotic perception of China’s tradition was based upon the centralized hydraulic system built early in the Chinese imperial period when control of water conveyed power: the so-called Asiatic mode of production (Wittfogel 1957: ch. 9: 369–411). And yet, as described in this chapter, although imperial governments provided infrastructure and macroeconomic schemes for economic improvement, the traditional Chinese economy was largely built by the people. Technological progress and institutional incentives in the landlord–tenancy system, and the monetary and capital formation systems were increasingly reinforced as the empire evolved. The dominance of small-scale production and exchange units, the existence of private ownership and the freedom to move and choose one’s job contributed to making the nation wealthy, and to distributing the wealth more equally among the people. Even during the Qing dynasty – described as the most despotic by Naito Konan – most resources, including the key currency, were controlled by the people (Lin 2006: ch. 1).
The Chinese empire had economic cycles of about 250 years. The outbreak of the Taiping Rebellion, when China was just starting to enter into contact with the West in modern times, did much damage to China, particularly in light of Japan’s Meiji Restoration. With the Taiping Rebellion and ongoing internal and external wars, China witnessed the reinforcement of state power (Lin 2006: ch. 8). But private property and the market economy were, for the most part, maintained until 1949. The centralization of the economy after 1949 was a great rupture from Chinese traditional economy.
With the long-term shift of China’s economic center from northwest to the southeast, when Western countries came to China in the mid-nineteenth century, they preferred to cooperate with the prosperous southeast coastal China. This coastal China gained much in terms of technology and markets, and the regional gap between the coastal area and the interior area was generally widened. Jeffrey G. Williamson observed that this kind of dual economy issue tends to be more serious if the area open to modern international trade is also the center of food and industrial materials production (1965: 3–45). China happened to possess such an economy due to its long-term historical development.
Rhoads Murphey used the dual economy model to describe the relationship between the treaty ports and China’s hinterland after 1840, arguing that imported foreign goods were, by and large, used only in the treaty port areas, and that the treaty ports constituted a kind of enclave economy. Unlike China’s traditional cities, the treaty ports had little connection with rural China (Murphey 1970: 52–57).
Lin (2005) has offered modifications to this theory. Between the late 1870s and 1906, interior products which satisfied the following conditions were still sold to the international market: (1) products whose profits were sufficient to cover transportation costs from inland China to the coast, such as native opium, bristle, or cotton cloth; (2) products whose production demanded less capital and whose production technology was easy to learn such as matches; (3) products whose raw materials were found in the countryside, such as pottery. In the wartime period (1937–1945), the Guomindang-led Republic of China (ROC) moved to Chongqing, which also developed interior China. For the rest of the period between 1850 and 1949, China’s coastal region was more integrated with the international economy than the economy of the interior and there was an excessive concentration of economic resources in coastal China. In spite of enormous efforts after 1949, the gaps between prosperous coastal China and poor interior China still exist today (Lin 2005: 179–197).
After studying many less developed countries, Gerschenkhron pointed out that in the process of transformation from a traditional to a modern economy, only by frankly recognizing the strengths of the existing tradition, and attempting to develop fully, rather than to stifle that tradition, can modernity be more smoothly achieved (1962: 30). After China contacted the West in the mid-nineteenth century, traditional native banks rivaled foreign banks for providing credit to the import and export trade. A major reason for this was that Chinese society was still based on blood relationships or native-place relationships, and native banks could maneuver through these traditional ties better than foreign banks. The earliest modern industries in China, including textiles, silk filature, and coal mining were started mostly where the traditional industries were already in place (Hubei daxue 1958: 234–235).
In the land collectivization process, in one single year, even though family farms occupied just 6.4 percent of the total agricultural land in the nation, they accounted for 30 percent of the production value. Meanwhile, because the output of communal land was taken by the government, even though it accounted for 88.8 percent of total cultivation, its output contributed just 66 percent of national agricultural value (Gao 1973: 321–322). By contrast, the family farm system in Taiwan was maintained after the land reform process of the ROC, which has ruled Taiwan since 1945. Before this, when Taiwan was ruled by Japan during the 1895–1945 period, the subsoil landlords’ landownership was exchanged for stock in modern companies. In the Republican period, topsoil landownership was also exchanged for stock in modern companies. Mainly through the use of fertilizer and new plant varieties, as with China’s traditional economy, modern agriculture developed quickly in Taiwan and with it the ability to nurture a modern economy and democratic politics (Lin 1979). In the decade between 1979 and 1989 of the PRC, the collective sector, consisting mainly of rural community enterprises grew at a rate of more than 20 percent per year. It was this sector, more than any other, which accounted for the impressive 9.5 percent growth per annum in the economy as a whole during that decade (Huang 1993: 238–239).
Although many previous studies have stated that China’s traditional economy was stagnant; in fact it witnessed long-term economic growth interrupted by natural and political disasters as described in this chapter. In Taiwan and in some cases in mainland China in the modern period, development has been more based upon Chinese tradition. The relation between China’s historical tradition and its economic development is a topic worthy of attention.
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